5 Ways to Build Equity in Your Home

Equity is the difference between a property’s market value and the balance on an outstanding loan. Home equity is important because it can easily be converted to cash through a line of credit or a loan. To increase a home’s equity, the owner must increase its value, lower their debt, or do both. Here are five ways to build equity in a home.

Make a Bigger Down Payment

A down payment or deposit provides quick equity, and the more sizable the amount, the better position the homeowner is in. Additionally, those putting down 20% or more may be able to avoid paying PMI or private mortgage insurance costs. You can get more information at Fellowship Home Loan on how to assess your finances and objectives when deciding how much to offer as a down payment.

Pay the Mortgage Faster

Mortgage payments cover the loan’s interest and the principal. Most home loans are on amortization schedules where owners make equal payments over a specific period until the loan is paid off.

Generally, more of each month’s payment is applied to interest in the beginning, with more going toward the principal over time. Those who can afford to do so should consider paying more than the minimum required amount each month. By doing so, the loan’s balance decreases faster, and equity increases along with it.

Consider a Short-Term Refinance

Refinancing to a short-term mortgage will help a homeowner build equity quickly. With a 15-year home loan, interest rates are lower and more of each payment goes toward the principal rather than the interest.

This builds more equity each month than one would with a 30-year home loan. However, it’s important to remember that such a loan comes with higher monthly payments, and homeowners should budget accordingly.

Make Improvements to the Property

Home improvement and remodeling projects can also increase equity. Many popular upgrades offer a return of about 65 cents on every dollar spent. Smaller jobs, like garage door installations, increase equity quickly when they’re paid for in cash.

Unless you’re renovating with plans to sell, it’s crucial to consider how much the upgrade will improve your daily experience in the home. Consult a real estate agent or renovation expert to determine which upgrades will offer the highest returns.

Wait for the Housing Market to Improve

If you’re in no hurry to build home equity, it’s best to be patient. Today’s housing market is in a state of transition, and your home’s value may increase as the market improves. Similarly, if the market declines, the home’s value may decrease, and you’ll lose equity. While it’s impossible to control or predict the market, it’s important to keep it in mind. Use an online tool or consult an appraiser to get an estimate of a home’s value at any time.

In Conclusion

Home equity is an important part of a secure financial future. If you’re thinking of buying or refinancing a home, contact one of our loan specialists today to get started.

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